🔒Credit union CEOs say they’re prepared for economic headwinds

Anticipating difficult economic times, Hartford Federal Credit Union has tightened its lending standards for home equity lines of credit, lowering its loan-to-value ratio to 70% from 80% for moderate- to higher-risk borrowers.

Just implemented about a month ago, the new approach has lowered the amount of credit available to about 30% to 40% of Hartford Federal Credit Union’s borrowers, according to President and CEO Ed Danek Jr.

“It doesn’t feel like a recession, but sooner or later the energy prices, the food prices and core inflation, … it’s all going to ripple through the economy,” said Danek, whose credit union has $159.9 million in assets. “I’m afraid you couple that with the recent aggressive (U.S) Fed actions and it could be really difficult. Either way, we are prepared for it.”

However, this relatively small lending-standard adjustment is the only out-of-the-ordinary measure Hartford Federal has taken in response to the threat. Danek said his 17,000-member credit union’s conservative lending practices have already prepared it for any economic turbulence that can be reasonably anticipated.

In recent interviews, heads of three of the state’s largest credit unions all predicted worsening economic conditions. Only Danek, however said his institution has taken preventative action. The CEOs of Connex Credit Union and Charter Oak Federal Credit Union said their institutions’ robust safeguards are up to the challenge, at least for now.

“We have to be careful,” said Brian A. Orenstein, president and CEO of the 85,000-member Charter Oak Federal Credit Union with $1.6 billion in assets. “As credit unions, we try to work with our members, so I really can’t see us taking drastic measures that might hurt the membership based on what we might be forecasting. Now, if things do turn worse, we might have to take those measures, but we wouldn’t do it based on economists’ forecasts, we would really have to see some of our own data and some more … local, New England data where delinquencies are significantly higher before we would hurt the membership with some kind of credit reduction.”

The bottom lines of the state’s 85 federally-insured credit unions have not yet shown signs of significant impacts from any potential downturn. Through the first six months of this year, they reported $14.7 million in net income, up slightly from $13.9 million during the year-ago period, according to National Credit Union Administration (NCUA) data.

Their loan portfolios grew 5.2% during that time period to $8 billion, while the amount of money credit unions set aside to cover loans that may go bad in the future actually decreased to $43.5 million during the second quarter of this year compared to $47.8 million a year earlier.

Tough economic times are really when credit unions shine, said Bruce Adams, president and CEO of the Credit Union League of Connecticut. Without stockholders to appease, not-for-profit cooperatives are more at liberty to adjust terms to help borrowers get through a rough patch, Adams said.

When the onset of COVID-19 sent the economy into a short-term tailspin, credit unions were allowing members to skip loan payments “left and right,” he said.

“The thing that sets credit unions apart is their ability to continue to do business and keep their borrowers healthy throughout bad times,” Adams said. “We are building the resources now in order to be compassionate when it hits the fan for our members.”

Rising rate environment

Connex Credit Union President and CEO Frank Mancini said his staff will keep an extra close watch on the performance of mortgage loans made over the past two years, when home values shot up dramatically thanks, in part, to an influx of buyers from New York.

A downswing could see those values retreat quickly.

“We will be watching that pocket because the loan-to-value (ratio) might be a little higher,” Mancini said.

Mancini said he’s not anxious about a downturn. Connex, with $932.7 million in assets, issued loans at a record pace in the past 18 months.

In fact, Connex’s loan portfolio has grown 20% over the last year — driven by new vehicle and mortgage loans — to $824.6 million at the end of the third quarter, NCUA data shows.

Slowing demand could be good for his hardworking staff, he said.

“It might be nice for them to have a little break in the pace they have been under over the last few years,” Mancini said.

Mancini is concerned, however, that rising interest rates could stall plans to lend $30 million to low- to moderate-income families over a five-year period.

Rising interest rates have increased borrowing costs dramatically, reducing the amounts people can afford to borrow. Mancini said this climate could cause home prices to retreat and sellers to hold onto properties in the hope of a better future.

Mortgage rates surpassed 7% at the end of October, reaching their highest level since 2002.

“With the interest rates the way they are, they are forcing down the prices that low- to moderate-income people can afford to buy,” Mancini said.